IRVINE,CA - Ten-X Commercial, the nation's leading online and only end-to-end transaction platform for commercial real estate, released its latest U.S. Apartment Market Outlook, including the top five Buy and Sell markets for multifamily real estate assets. The report shows a U.S. multifamily market grappling with robust supply as vacancies have climbed 40 bps in the past year and are projected to soar by another 110 bps by 2021.
"Completions have outstripped absorption for six straight quarters, while absorption has slipped to its lowest level in more than five years," said Ten-X Chief Economist Peter Muoio. "While today's sub-5 percent vacancy rate is relatively low from a historical perspective, vacancies have climbed to their highest level since 2012 amid this new supply."
Ten-X Commercial identifies Houston, Raleigh-Durham, N.C., Salt Lake City, Fort Worth Texas and Charlotte, N.C. as top markets where investors should consider buying multifamily assets. These markets continue to enjoy significant demand, which is underpinned by resilient local economies.
Miami, San Jose Calif., New York City, San Francisco and Oakland, Calif. are the top markets where conditions might cause investors to consider selling multifamily properties. These cities face rising vacancies and flattening rents as a wave of new supply is hitting the market — a situation which has not improved in the past six months and shows no signs of abating.
Nationally, multifamily completions should reach an all-time peak in 2018 as more than 300,000 new units flood the market, outpacing even the highest absorption levels in recent history. As a result, vacancies are expected to drift above 5 percent by the end of the year for the first time since 2011.
Ten-X Commercial incorporates cyclicality into its forecast model with a stress test in 2019-20, a scenario meant to estimate recessionary conditions rather than serve as a temporal prediction. Absorption is seen remaining positive but slowing amid the downturn scenario, lifting vacancies to the mid-6 percent range by 2020. Demand is projected to improve at the onset of recovery in 2021, bringing vacancies back below 6 percent, though they are forecasted to finish more than 100 bps above their current level.
U.S. apartment rents saw 3.9 percent annual growth in the first quarter, jumping to a record $1,321 per unit. This marks a notably cooler growth pace since rent growth peaked at nearly 6 percent in late 2015. Rent growth is forecasted to continue cooling through the recessionary scenario before returning to the low 2 percent range at the onset of recovery in 2021.
The multifamily sector's overall deal volume totaled $35 billion during the first quarter, a 27 percent increase from the same period in 2016. From Q1 2018 to Q2, the overall number of multifamily properties transacted via all three transaction solutions on the Ten-X platform increased by 33 percent. Multifamily properties transacted via Ten-X Commercial's Live Bid solution rose by 12.5 percent over the same time frame while the numbers of bidders grew by 10.4 percent, further showcasing the rise of interest in the multifamily sector.
"While millennials and other demographic groups continue to forego homeownership in favor of renting in walkable neighborhoods, developers appear to have gotten ahead of themselves in creating rental supply," said Ten-X Chief Economist Peter Muoio. "The pipeline can reasonably be described as a flood and though demand for these units is likely to come in the years ahead, we can expect to see some significant digestion issues in the near term."